What is a "Bad Credit Refinance"

What is a Bad Credit Refinance?

A bad credit refinance is one in which an individual's credit score and/or derogatory items listed on their credit report result in non-qualification for a prime conventional mortgage. The worst-case being that the individual does not qualify for any refinance home loan available.

In other words, the borrower needs to apply for a Subprime refinance, FHA home loan, or hard-money refi mortgage.

Most assume that a bad credit score will result in a much higher refinance rate, but that is not necessarily true in the case of an FHA refinance.

A borrower with a poor credit score as low as a 620 can be eligible for low FHA mortgage refinance rates.

Recent and stricter lender underwriting guidelines have made it more difficult for individuals with credit scores below a 620 mid fico to qualify for a conventional or FHA refinance loan.

Subprime Refinance Home Loan

In recent years, those with bad credit commonly refinanced with a subprime lender, which resulted in refinance rates up to 3% higher or more than the same loan scenario qualified with excellent credit.

Today, Subprime home loan lenders are dwindling at warp speed, with FHA home loans sweeping in to fill the void and save the day!

FHA refinance home loans can save the day for those with poor credit.

FHA Refinance Home Loan

FHA refinance home loans offer a distinct advantage over Subprime mortgages in that they offer excellent refinance rates (comparable to excellent credit conventional interest rates) coupled with a high Loan-to-Value limit of 97% of the borrowers appraised home value.

FHA home loans are not credit score driven, but most underwriting investors will require a minimum of a 620 mid fico credit score to qualify. Also, no mortgage late payments in the previous 12 months will be allowed in most cases.

Those with poor credit scores as low as a 620 mid fico can now get low mortgage rates with a FHA refinance. In fact, those that qualify may receive lower mortgage rates than a comparable excellent credit qualified conventional refinance mortgage!

Bad Credit Refinance Details

Generally, those with credit scores below a 620 FICO fall into the "bad credit" refinance scenario under current mortgage lender guidelines.

In addition, individuals with multiple unpaid collections, judgments, and previous (or current) bankruptcy and foreclosure items listed on their credit report may fall into the "Bad Credit" zone.

Important Note : Those with credit scores between 620-700 and/or those refinancing most of the equity in their home would be advised to get an FHA home loan quote in addition to a conventional mortgage program quote to choose the best option for them. In many cases, an FHA home loan refinance will provide a better benefit than a comparable prime conventional mortgage.

Individuals with credit scores below 620 will have a much more difficult time qualifying for a competitive refinance home loan.

Hard-Money lenders should be a last-case only option. Today, "Hard-Money" lenders often cater to those refinancing with a credit score below 600-620. Hard-Money lenders will charge a major premium in interest rate for the privilege, and may significantly restrict the maximum amount of home equity the borrower can refinance. Most would advise the use of a Hard-Money lender only as a last-case option.

An alternative to going "Hard Money" is to contact a reputable credit restoration company to improve your credit score within FHA range (620 and up). The few hundred dollars spent on credit restoration with result in multiple thousands in principle and interest savings with a FHA refinance as opposed to a "hard money" home loan.

Bad Credit Refinance Questions?

Refinance Tool Box refinance mortgage professionals are available for help , at no cost, should you have any questions regarding a bad credit home refinance, debt-consolidation, or home equity loan. Request a Free Refinance Rate Quote if you are refinancing now and need rate quote comparisons. We are glad to assist and will respond promptly.